Friday 29/09/23

1. In MACRO & COMMODITIES NEWS, Germany struggles, the oil price won’t get a shale reprieve and olive oil stocks are running out
2. In M&A AND BUSINESS TRENDS NEWS, TAP goes up for sale, Arcelik/Whirlpool faces scrutiny, dealmaking hits a decade low and UK business confidence takes a blow
3. In TECH NEWS, OpenAI, Jony Ive and SoftBank are cooking something up, Zuck gambles on AI, Apple’s new phones get hot and Fortnite’s maker cuts 16% of its workforce
4. In MISCELLANEOUS NEWS, Evergrande’s shares are suspended, the average UK fixed rate mortgage dips below 6%, new housing starts boom, John Lewis does the sale/leaseback thang, Northvolt goes to Canada and Sunak keeps EV sales percentages in place
5. AND FINALLY, I bring you the impressive sport of pole vaulting…

So Germany stays in a rut, oil prices look unlikely to get a reprieve and olive oil supplies are running out…

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Slump in Germany is deeper than feared, warn economists (Daily Telegraph, Tim Wallace) shows that various economists are now warning that Germany’s sluggishness will last longer than previous expectations due to the ongoing energy crisis and disruption to supply chains. In contrast, though, *** NEWS JUST IN *** UK economy recovers stronger than France and Germany in boost for Sunak (Daily Telegraph) cites the latest ONS data which shows that the UK economy has outperformed the economies of France and Germany since the pandemic. They reckon that the British economy is 1.8% bigger than it was pre-pandemic whereas France has grown by 1.7% and Germany by 0.2%. Previous stats said that the UK economy only grew at 0.2% – so clearly they were very wrong! I must say, though, it doesn’t really FEEL like that does it??

Elsewhere, Oil Is Near $100. Shale Isn’t Coming to the Rescue (Wall Street Journal, Benoit Morenne and Collin Eaton) contends that although oil prices are pushing the $100 a barrel mark thanks to Saudi Arabia and Russia cutting oil production quotas, US shale drillers don’t appear to be rushing to produce more to take advantage of the high prices. Shalers have done this in the past but big shale players including Exxon Mobil and Chevron aren’t rushing to put more rigs online because they are happy just to keep things ticking over. According to a recent survey of 55 US oil companies, the majority said that they would keep activity levels roughly flat to keep their productive wells going and make more shareholder payouts. * SO WHAT? * I guess that shale producers have been badly burned in the past when OPEC+ managed to grind them into the dirt by increasing production for a sustained period. Shale oil costs more to get out of the ground than “normal” oil and so even though the oil price was too low for shale producers to make money, the Russians and Saudis were still able to do so. Still, they are surely missing out on taking advantage of current prices!

Then in Europe’s olive oil supply running out after drought – and the odd hailstorm (The Guardian, Sarah Butler, Sam Jones and Helena Smith) we see that Europe has almost run out of olive oil supplies thanks to summer wildfires and particularly hot weather in important growing regions including Greece, Italy, Portugal, Turkey and Mexico. * SO WHAT? * If this weather is a “one-off”, then things may not be so bad but when you consider things like Spain producing about 50% of the world’s olive oil, permanent climate change will have a huge effect on many economies. Figures from the International Olive Council said that global production is set to fall to less than half what it was last year thanks to all the droughts and heatwaves. Just to illustrate the point, prices of virgin olive oil from Analusia in Spain have now more than doubled to the highest price ever recorded in the country and this has filtered through to supermarkets in the UK who have had to put their prices up by 47! Another thing to consider for the consumer!

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

TAP goes up for sale, Arcelik/Whirlpool faces scrutiny, deal making hits decade lows and UK business confidence takes a hit…

Portugal puts national airline TAP up for sale (Financial Times, Barney Jopson, Sérgio Aníbal and Philip Georgiadis) highlights a move by the Portugal government to sell its flag-carrier, something that is likely to prompt a bidding war between British Airways owner IAG and Air France-KLM. The airline is currently 100% owned by the government and at least 51% of its shares will be sold (although 100% is not entirely out of the question). TAP is thought to be worth around €1bn and it actually managed a return to profit last year after years of problems during which time it came close to bankruptcy. * SO WHAT? * All three of Europe’s major airlines groups – IAG, Air France-KLM and Lufthansa – have said that they are up for acquisitions and have expressed an interest in TAP which could help them in the South American market.

Arçelik and Whirlpool white goods deal faces in-depth probe by UK regulator (Financial Times, Adam Samson and Jonathan Wheatley) shows that the CMA has signalled that it could launch an investigation into the household appliances maker’s bid to buy Whirlpool’s European appliances business. It says that the acquisition could reduce choice for consumers and push prices up. * SO WHAT? * The CMA is waiting for Arçelik to respond to its concerns before launching a full investigation. If the deal goes

ahead, the enlarged company would be the UK’s biggest supplier of washing machines, tumble dryers, dishwashers and cooking appliances thanks to its brand portfolio that includes the likes of Beko, Grundig, Blomberg and others

That said, Dealmaking languishes at decade low on private equity drought (Financial Times, Ivan Levingston, Ortenca Aliah and James Fontanella-Khan) cites data from the London Stock Exchange Group which says that the lack of private equity activity and twitchier regulators has led to the worst M&A drought since 2013! Deals worth $10bn or more saw the sharpest drop in the first three quarters of this year versus the same period last year! The deal pipeline is now looking a bit better but dealmakers aren’t expecting a roaring comeback thanks to a lack of obvious catalysts. * SO WHAT? * IMHO, I would have thought that the greatest potential catalyst of all would be an end to the Ukraine war (although it depends on how it ends and what happens to Putin). IF Russia suddenly became more “western-friendly” I think that there would potentially be a deal-frenzy-to-end-all-deal-frenzies (both domestic and cross-border), but such a conclusion to a messy war is far from certain.

Then in Confidence falls amid pessimism on spending (The Times, Jack Barnett) we see that the latest trend gleaned from Lloyds Bank’s business confidence tracker is that although business confidence fell this month it is thought that this could improve thanks to interest rates being left on hold – and hiring plans are looking reasonably steady.

Want to engage with myself and the team at Wats12on’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Altman, Ive and Son cook something up, Zuck gambles on AI, Apple gets complaints and Fortnite’s creator wields the axe…

Everyone’s getting exited by OpenAI and Jony Ive in talks to raise $1bn from SoftBank for AI device venture (Financial Times, Matthew Garrahan, Tim Bradshaw, Madhumita Murgia and Kana Inagaki) given the people involved and it is said that they are all in talks to develop some gadget that uses AI in a way that will chime as well as the iPhone did with consumers. They want to create a better and more natural intuitive AI user experience but there’s nothing concrete coming of this just yet. * SO WHAT? * This sounds just lovely, but there’s nothing doing yet. No doubt these talks will be referred to at the next funding round to get investors frothing at the bit, but at the moment it’s just talk. Interesting talk, though…

Zuckerberg gambles on AI after his metaverse stumbles (Daily Telegraph, James Titcomb) adds a bit more colour to yesterday’s story about Meta launching AI chatbots, saying that Zuck’s intention is for the 28 bots to become more than just talking search

engines – he wants them to be your friends! In terms of other projects, he remains committed to the metaverse and, after the initial frenzy surrounding Threads – his Twitter-killer – the company admitted that things had calmed down somewhat.

Elsewhere, Apple takes heat for new iPhone (Daily Telegraph, Matthew Field) highlights emerging complaints from users of Apple’s latest iPhone 15 Pro and Pro Max handsets – that they are already overheating! They are apparently heating up to the extent that they are becoming difficult to hold when doing video calls, playing games or listening to music. * SO WHAT? * Apple, unsurprisingly, has not commented on this. As a quick guess I’d imagine they’ll come out with a software patch that will sort it – but I’d like to know from the company itself!

Then in Fortnite maker sheds 900 staff (The Times, Katie Prescott) we see that Epic Games, which makes Fortnite, is reducing its headcount by around 16% in order to cut costs as Epic’s chief exec said in a memo that “we’ve been spending way more money than we earn”. Is this the beginning of the end for what has proved to be a very popular game – or is it just a sign of just how much it costs to take Apple to court over App Store taxes??

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

We look at real estate developments, Northvolt’s Canadian adventure and Sunak sticking with EV quotas…

In a quick scoot around some of today’s other interesting stories, Evergrande shares suspended as chief under police surveillance (Daily Telegraph, Chris Price) gives us the latest on the Evergrande situation – that trading in its shares were suspended yesterday until further notice. This is all the more notable given that its shares only just started trading again on the Hong Kong Stock Exchange a month ago after a 17-month suspension that was prompted by its failure to publish its financial results! Evergrande’s nightmare continues…

Back home, Average five-year fixed mortgage rate in UK falls back below 6% (The Guardian, Rupert Jones) shows that lenders’ scramble to drum up more business by cutting their mortgage rates has driven the average rate back down to below 6%, with an average five-year fixed rate of 5.99% according to data from Moneyfacts. This rate was down from a peak of 6.33% while a two-year fixed hit 6.50%, down from a peak of 6.81%. * SO WHAT? * This is no doubt down to the Bank of England unexpectedly keeping interest rates unchanged. I would have thought that as long as interest rates stay the same or go lower we will see more lenders cutting their mortgage rates in order to attract more customers.

This could potentially come in handy for would-be buyers as New housing starts surge in race to beat net zero deadline (Daily Telegraph, Melissa Lawford and Ruby Hinchcliffe) shows that builders began construction on 73,600 new homes in the April-to-June quarter – the highest level of new starts for almost 50 years – as they tried to beat the June 15th deadline past which new homes will be subject to onerous new regulations that are intended to cut carbon emissions. They will be subject to the Future Homes Standard which stipulates various measures, including the installation of charging points for EVs and other tech. New build houses will be exempt from having to comply if they were started before the June 15th cut-off. * SO WHAT? * There are lots of starts, but there was no guidance on when they should be finished! Funnily enough, in that same April-June period, the number of housing completions FELL by 12% as developers slowed down because of a weaker property market. It looks highly likely that housing starts will now fall off a cliff – and you would have thought that completions will only start looking up when the housing market starts to recover. Perhaps falling mortgage rates will help the current state of affairs!

Then in John Lewis looks at sale and leaseback of 12 Waitrose supermarkets (The Guardian, Sarah Butler) we see that the troubled retailer is now looking at raising £150m from the sale and leaseback of 12 of their Waitrose supermarkets that could be poured into updating stores, cutting prices and its online business. * SO WHAT? * Again, I think this is yet another example of where management is showing little imagination, poor leadership and a lack of urgency to revive a business that appears to be heading towards terminal decline. It’s one thing to do a sale-and-leaseback (this is a classic move, BTW) but why not announce SPECIFIC plans and a proper roadmap towards recovery?!? I would do it the other way around – announce a big plan and THEN announce how it’s going to be financed.

Meanwhile, in the world of electric vehicles, Northvolt to build battery gigafactory in Canada (Financial Times, Richard Milne) shows that Europe’s biggest battery player has decided to build its first gigafactory outside the continent in Canada with a view to production starting in 2026 supplying customers including VW, Volvo Cars and BMW in North America. Canada was selected as the destination because of the renewable energy, supply of raw materials and “the attitude of the government”. It’s getting a ton of help on the finances from the Canadian government and Quebec’s local administration and will only run on renewable energy because of its access to hydropower. * SO WHAT? * This will be Northvolt’s fourth gigafactory and things are looking good for a potential IPO next year – but it’s probably looking even better for jobs as Northvolt needs a LOT of people to fill these factories!

Then in Most new cars sold in UK will have to be fully electric by 2030, government confirms (The Guardian, Jasper Jolly) we see that, after Sunak’s high-profile reining in of climate commitments last week, the government is sticking with the rule that 80% of sales from manufacturers must be fully electric (or powered by something that’s not petrol or diesel) by 2030! This is despite pushing the petrol/diesel car sales deadline back to 2035, the standard in the rest of Europe. As things stand at the moment, 22% of sales in 2024 must be battery powered – and this will rise annually to 52% in 2028, 66% in 2029 and 80% in 2030! * SO WHAT? * This is surely the worst of all worlds for car manufacturers because they will have to sell more EVs at a time when the sense of urgency from the consumer has gone (because the deadline’s now 2035) and when there is a cost-of-living crisis! It sounds to me like this is a way for the government to appease the environmental lobby who got affronted last week and put the onus back onto carmakers to make cars that are a) affordable and b) attractive.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

…in other news…

Whenever I see someone taking part in the sport of pole vaulting I am always very impressed. The fact that you are sprinting as fast as you can to hit a small target with a bendy pole with the aim of flipping yourself upside-down and getting yourself over a very high bar just does not sound natural to me!!! I think that it takes a lot of guts to do it and this video reminds us all of how impressive this sport and its practitioners are! However, have you ever seen the traditional Dutch sport of “fierljeppen”? This is where a person takes a run-up and climbs a pole as high as possible whilst trying to cross water!!! It originated as a way to cross waterways! Not sure which is scarier – flipping yourself upside-down in pole vaulting or coming crashing down from a great height when crossing a canal 🤣 I have no intention whatsoever of trying either! But bravo to those who do!